ARCADIS improves organic revenue growth in second quarter 2013 while maintaining margins
(Thomson Reuters ONE) -
* Organic net revenue growth at 4%, driven by all regions except Continental
Europe
* Operating margin comparable to last year despite margin decline in
Continental Europe
* Net income from operations up 2% in the quarter and 5% for the first half
year, reflecting growth of revenues and margin during the first half year
* $90 million US private placement completed to replace maturing bank debt;
average net debt to EBITA ratio improved to 1.5
* Project Europe achieved cost savings of ?5.1 million in the first half year
and is at annual run rate of ?12.9 million with cost actions ahead of
schedule
* 2013 outlook updated: a further increase of revenues, and a profit growth of
0% to 5%, barring unforeseen circumstances
July 31, 2013 - ARCADIS (NYSE EURONEXT: ARCAD), the leading pure play global
engineering and consultancy firm, today reported results for the second quarter
and first half year ended June 30, 2013.
Key figures
--------------------------------------------------------------------------------
Second First half
Amounts in ? millions unless otherwise Quarter year
noted
2013 2012 Change 2013 2012 Change
--------------------------------------------------------------------------------
Gross revenues 638 633 1% 1,240 1,225 1%
Organic gross revenue growth 1% -1%
Net revenues 484 463 5% 950 906 5%
Organic net revenue growth 4% 2%
EBITA 36.8 32.8 12% 76.4 70.6 8%
Operating EBITA 43.4 42.3 3% 86.2 81.5 6%
Operating margin 9.0% 9.1% 9.1% 9.0%
Net income 19.6 16.2 21% 41.4 37.9 9%
Ditto per share (in ?) 0.27 0.23 17% 0.58 0.54 6%
Net income from operations (1)) 24.1 23.6 2% 49.5 47.2 5%
Ditto per share (in ?) (1)) 0.34 0.34 0% 0.69 0.68 2%
Average # of shares outstanding 71.9 70.6 2% 71.5 69.7 3%
(million)
--------------------------------------------------------------------------------
1. Before amortization and non-operational items
Commenting on the results CEO Neil McArthur said: "Our strategy to expand into
Emerging Markets continues to pay off in growing our revenues and profit.
Implementing our new operating model in Continental Europe is on plan. We
accelerated our cost actions, increased backlog by 7%, and expect a positive
margin effect in the second half of the year. Firm wide backlog in the quarter
was stable and is still ahead 5% compared to the end of 2012. Major wins
included global frameworks for multinational clients and the Zuidas project in
Amsterdam. We continue to look at acquisitions with a focus on strengthening our
leadership positions. Barring unforeseen circumstances, we expect for full year
2013 a further increase of revenues and a profit growth of 0% to 5%."
Review of performance
Second quarter
Gross revenue development benefited from the acquisitions of BMG, ETEP,
Geohidrología and SENES, which together contributed 2% to growth. The currency
effect was a negative 2% as the euro strengthened against our major currencies.
Organically, gross revenues rose 1% with double digit organic revenue growth in
Emerging Markets being the strongest contributor. Growth was also achieved in
the UK market, while North America slightly declined due to less outsourcing.
Revenues were down in Continental Europe, albeit at a slower rate than in the
first quarter.
Net revenues (revenues generated by own staff) rose 5%. The currency effect was
a negative 2%, while acquisitions contributed 3%. Organic growth improved to 4%
with Emerging Markets leading. The UK and North America also realized organic
growth. The organic net revenue decline in Europe decelerated from 10% in the
first quarter to 4% in the second quarter.
Operating EBITA increased 3% with stronger margins in Emerging Markets and
acquisitions contributing to the increase. The acquisition impact was 5%, the
currency effect was 3% negative. At +1%, the second quarter saw a reversal of
the downward trend in organic operating EBITA seen in the first quarter (-1%)
thanks to a robust performance in Emerging Markets. Restructuring, integration
and acquisition related costs during the quarter were ?6.7 million (2012: ?9.4
million) and were mainly related to adjusting activities in Continental Europe
to a more challenging business environment.
At 9.0%, operating margin (operating EBITA as a percentage of net revenue) was
comparable to last year's level (9.1%) despite the continued margin pressure in
Continental Europe. In North America, higher legal expenses and salary increases
weighed on margin performance. Further margin gains were achieved in Emerging
Markets.
Financing charges were ?4.7 million (2012: ?5.6 million), as financing terms
were improved, resulting in lower fixed rate debt. At the end of the quarter
ARCADIS announced that it had completed a 5-year U.S. Private Placement (USPP)
of $90 million issued at 5%. The USPP proceeds were used to replace maturing
bank debt.
The tax rate was 28% (2012: 30%). Net income from operations was 2% higher at
?24.1 million (2012: ?23.6 million), almost in line with the operating EBITA
growth.
First half year
Gross revenues in the first six months of 2013 rose 1% with acquisitions
contributing 4%, while the currency effect was a negative 2%. Growth was aided
by projects executed for multinational clients, which were up 15%. Organically,
revenues declined 1% mostly as a result of lower Continental European revenues.
Net revenues rose 5%, of which 5% can be attributed to acquisitions and 2% to
organic growth, the currency effect was a negative 2%.
Operating EBITA increased 6% with acquisitions contributing 9% to the increase.
The currency effect was 3% negative. Organic development was flat.
Restructuring, integration and acquisition costs totaled ?9.8 million (2012:
?10.9 million).
Operating margin in the first half year was 9.1%, compared to 9.0% in 2012
reflecting a strong contribution from Emerging Markets and improved margins in
the UK, offsetting margin declines in Europe and North America.
Financing charges were ?10.1 million (2012: ?10.4 million) and at 28% the tax
rate was in line with last year. Net income from operations was 5% higher.
Cash flow and balance sheet
Net working capital at the end of the quarter was at 18.4%, which was higher
than last year (2012: 17.9%), but lower than at the end of the first quarter
(19.9%) as we continue to execute our working capital reduction program. The
reduction in operating cash flow to minus ?40.6 million compared to ?4.9 million
in the first half of 2012 can be mainly explained by timing differences in
salary and tax payments and payment of obligations related to prior year
acquisitions.
Net debt was ?401 million and flat with last year (2012: ?402 million) despite
the acquisitions that were completed in the past 12 months. The net debt to
EBITDA ratio at the end of the second quarter amounted to 1.5, as calculated per
our bank covenants.
Developments by business line
Figures below are for the first half year of 2013 compared to the same period
last year, unless otherwise mentioned.
Infrastructure Water Environment Buildings
-----------------------------------------------------------------------------
Gross revenue growth(1)) -8% +5% +1% +10%
Of which:
* Organic -5% -2% -1% +4%
* Acquisitions 0% +6% +3% +9%
* Currency impact -3% -1% -1% -1%
-----------------------------------------------------------------------------
Net revenue growth(1)) 0% +6% +5% +9%
Of which:
* Organic +3% -2% +3% +2%
-----------------------------------------------------------------------------
Backlog development(2)) 4% -5% 0% +12%
-----------------------------------------------------------------------------
1. Rounding and reclassifications may impact totals
2. Organic development compared to year-end 2012
* Infrastructure (25% of revenues)
The decline in organic gross revenues results in large part from lower
subcontracting activities in Continental Europe. Emerging Markets and the UK
contributed most to the increase in net revenue. Growth was also achieved in
North America. The operating margin was 7.0% and below 2012 due to fierce
competition in Continental Europe.
* Water (15% of revenues)
The acquisition of ETEP in Brazil delivered most of the revenue increase.
Organic development was positive in the UK, but negative in Continental Europe,
with austerity measures impacting the business environment, particularly in
water management. The operating margin was 8.3%, lower mainly due to lower
volumes affecting utilization rates.
* Environment (33% of revenues)
Increases in Emerging Markets and parts of Continental Europe offset a decline
in North America, resulting from reduced subcontracting. Organic net revenue
growth improved versus the prior year. The acquisitions of SENES and BMG also
contributed to growth. At 11.8% operating margin was essentially flat compared
to last year as a decline in North America was compensated by improved
profitability in Emerging Markets.
* Buildings (27% of revenues)
Strong revenue growth was achieved in Emerging Markets but was somewhat offset
by declines in Continental Europe and the US. In the first quarter Langdon &
Seah still counted towards acquisition growth, as of the second quarter it
contributes to organic growth. Architectural unit RTKL improved its commercial
revenues in North America and Asia. Net revenue developments were in line with
those in gross revenue. Operating margin improved to 8.8% especially in Emerging
Markets and at EC Harris.
Progress in Project Europe
Implementing our new operating model in Europe is on plan and we are ahead of
schedule with accelerated cost measures. Year-to-date savings reached ?5.1
million at the end of the second quarter, and were at an annualized run rate of
?12.9 million. Restructuring charges to date are ?6.5 million. Operating margins
are expected to improve in the second half of 2013 from their first half levels.
Backlog
Backlog was flat for the quarter despite the high level of organic growth and
for the first half grew organically by 5% compared to year-end 2012. The
Buildings business line saw the highest backlog increase, followed by
Infrastructure. Environment was flat, while Water saw a small decrease.
Outlook
In the infrastructure market, good opportunities for further growth exist with
clients in Brazil, where ARCADIS has a strong market position. The Middle
Eastern market also offers good growth potential. In Chile, the slowdown in the
mining market and increased competition from Spanish companies in public sector
infrastructure cause revenue and price pressure. Higher government spending in
North America and the UK is likely to stimulate demand. We expect a
stabilization of activities in Continental Europe in the second half of 2013.
In the water market an improvement is anticipated as the North American market
is expected to pick up, while Emerging Markets, including Brazil and the Middle
East also offer growth opportunities. During the second quarter, ARCADIS
launched water activities in Asia. A decline in the water business in
Continental Europe is expected, but opportunities from the recent flooding
events in Central Europe could first lead to projects from private sector
companies seeking to protect assets and at a later stage, from public sector
river planning projects. We continue to see good growth opportunities from our
Water for Industry initiative with our multi-national clients.
In the environmental market, ARCADIS expects to maintain momentum and organic
net revenue growth, driven by the private sector and especially by multinational
clients. Also, in mining, good growth opportunities are presenting themselves as
evidenced by the strong synergy pipeline with SENES. We believe that growth
could be generated in North America, the UK and Emerging Markets, mainly Brazil.
Higher utilization and rate increases are expected to improve margins in North
America.
In the buildings market, ARCADIS' strong presence and synergies with acquired
companies will lead to further growth. Combined revenue synergies with EC Harris
and Langdon & Seah in the first half year of 2013 amounted to ?70 million of
newly booked work, already equaling the amount achieved in full year 2012. This
will generate growth in Emerging Markets and the UK while a further decline of
activities is likely in Continental Europe. Built Asset Consultancy, ARCADIS's
offering aimed at maximizing value throughout an asset's lifecycle, is creating
new opportunities for growth globally.
Conference Call
ARCADIS will hold a conference call to discuss its financial results for the
second quarter of 2013 on July 31, 2013. The call will begin at 15.00
Amsterdam, 09.00 New York, 14.00 London. The call-in numbers are +31 (0)207
176 886 for Amsterdam, +1 631 510 7498 for North America and +44 (0)
1452 555 566 for UK with ID # 11658096. The conference call also will be
webcast live, and can be accessed on the company's IR website at
www.arcadis.com. A replay of the webcast will be available on the site
approximately two hours after the end of the live call.
For more information, please contact Joost Slooten of ARCADIS at +31-202011083
or outside office hours at +31-627061880 or e-mail joost.slooten(at)arcadis.com
About ARCADIS:
ARCADIS is the leading pure play global engineering and consultancy firm,
providing consultancy, design, engineering and management services in
infrastructure, water, environment and buildings. We enhance mobility,
sustainability and quality of life by creating balance in the built and natural
environment. ARCADIS develops, designs, implements, maintains and operates
projects for companies and governments. With 22,000 people and ?2.5 billion in
revenues, the company has an extensive global network supported by strong local
market positions. ARCADIS supports UN-HABITAT with knowledge and expertise to
improve the quality of life in rapidly growing cities around the world. Please
visit: www.arcadis.com
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objectives of management for future operations or economic performance, or
assumptions or forecasts related thereto) are forward looking statements. These
statements are only predictions and are not guarantees. Actual events or the
results of our operations could differ materially from those expressed or
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numerous risks and uncertainties. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
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Although we believe that the expectations reflected in such forward looking
statements are based on reasonable assumptions, our actual results and
performance could differ materially from those set forth in the forward looking
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Datum: 31.07.2013 - 07:00 Uhr
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